How to select a mutual fund scheme to invest in?

Each of these portals have there own logic for rating funds. For instance Money Control's ratings historically gave more relevance to short/mid term performance. Value research gives more importance to consistency and long term performance. I am not going to debate which method is the best as the experts behind each of these portals have there own logic/reasons for there ratings. There is no harm in selecting star rated funds based on any of these portals as each of these ratings have there own relevance.

For a more informed investor who has the time to research, I would recommend selecting mutual fund schemes to invest in based on the following criteria.

Longterm Performance , consistency in Returns

Short Term Performance (though a fund has performed well in the past, is there a let down in short to mid term performance)

Performance across market cycles, like during bullish and bearish phases (how well did the fund perform during the bearish phases)

Fund Managers performance with the scheme(If a fund just got a new fund manager, I would observe the performance under this new manager before I select the fund)

For equity mutual funds, one will also need to evaluate risk. (Exposure to midcaps, Standard Deviation of the fund)

For debt mutual funds, apart from risk one also need to examine entry/exit loads and expense ratio are very important.

In these days it is very difficult to find an unbiased financial advisor. Always validate the advise your receive by doing some research online so you know you are not being taken for a ride. Please stay away from NFO's as much as possible.

4 comments:

Hi , good post and very informative. I agree with your words, before investing Longterm Performance and proper research about the fund plays a very important role.I have invested my savings in "Mutual Fund" and I am very happy with the returns I am getting and the security they provide me.

1) Your age- There is a general saying that equity investments as a proportion of your total investible surplus should be 100 - your age. So, if you are in the younger age group, you can invest high percentage of your assets in equity. If you are in the older age group, then high risks assets should be minimized.2) Your appetite for risks-If you are willing to take risks, then going for Equities may be the best option and they may give excellent returns for your money.3) The people dependent on you- If you have more number of people dependent on you, avoid Funds involving very high-risks. You may opt for the lower-risk Equity funds, Hybrid and Debt Funds.4) Your salary- It is not advisable to invest all your money in one single fund. A diversified portfolio would help you in the long run. If the salary is low, it is better to avoid funds that have considerable risk.5) How frequently do you require the pay-outs- Equities may pay once a year, or whenever profit booking is done. I you need regular pay-outs, then avoid investing in equities.

To choose the Best Funds it is best that you meet a Financial expert, who may pick the Best Funds for you and plan an Investment strategy for you.

Overall the biggest operating factor is your appetite for risk

Funds that involve high risk, generally give good returns. Yet a Mutual Fund failing completely occurs in rare cases. With modern strategies and the boom in the economy it is rare and the Mutual Fund can always bounce back over a period of time, enough to give you back the invested amount.

If you are open to high risk, then equities is the best option for you. If you are willing to take moderate risks then 'Balanced Fund' is the best option for you. If you want to play safe then choose Debt Funds. However, they still suffer from the risks of Interest rates and possibility that the Company may fail to deliver.

I think it is not difficult to know how to select a mutual fund for a better profit from the investment. Once if you are aware about choosing a mutual fund wisely, it is further easy to keep your income growing.